The Copyright Act requires that an infringement action be brought, if at all, within three years of the accrual of the claim. This requirement often limits the period for which damages can be recovered. As a recent Supreme Court opinion demonstrates, however, that is not always the case.
In 1983, Sherman Nealy and Tony Butler recorded and released one music album and several singles. Soon afterward, Nealy went to prison for drug-related offenses. He spent most of the next few decades in prison, getting out in 2015.
Meanwhile, Butler (unbeknownst to Nealy) had entered into an agreement with Warner Chappell Music, Inc., giving it the right to license the works that they had created. Warner Chappell licensed the works to quite a few musicians who used samples of their music in other compositions.
In 2018, following his prison stint, Nealy sued Warner Chappell for copyright infringement. The infringing activity, Nealy claimed, dated back to 2008— ten years before he brought suit.
Under the Copyright Act, a plaintiff must file suit within three years after the claim accrues. But some courts have applied a “discovery rule” to this limitations period. Under the discovery rule, a claim accrues when the plaintiff discovers, or with due diligence should have discovered, the infringing act.
Unfortunately for Mr. Nealy, the Southern District of Florida applied a grudging version of the discovery rule. It held that, while the cause of action accrued only upon the discovery of the infringement, the damages were nonetheless limited to the three year period starting when the infringement occurred. In other words, Mr. Nealy was out of luck. The trial court relied on a similarly grudging holding of a panel of the Second Circuit Court of Appeals. The Court of Appeals for the 11th Circuit disagreed and reversed the trial court’s ruling.
The Supreme Court, perceiving a disagreement between the Second and Eleventh Circuits, agreed to hear the case. Warner Chappel and Mr. Nealy agreed that the discovery rule applied to the accrual of the cause of action, and stipulated the question before the court was the period of time for which damages could be awarded. The Supreme Court sided with the Eleventh Circuit, ruling that, if the discovery rule is to be applied (a subject about which the Court was nominally withholding judgment), it would be self-defeating to then say that a strict three-year period applies to the measurement of damages. Thus, Mr. Nealy may be able to recover damages for the full ten year period of the alleged infringement, not the three year period that the limitations period in the Copyright Act suggests.
Justices Gorsuch, Thomas and Alito dissented in an opinion that suggested that the discovery rule has no place in copyright, and that this case was the wrong case to have considered. Instead, they had wanted to grant certiorari in another case, Martinelli v. Hearst Newspapers LLC, in which the discovery rule itself was contested. However, they were the only justices who wanted to hear that case, and certiorari was denied.
Thus, while the Court did not expressly approve the discovery rule itself, it might as well have. It left it untouched in Mr. Nealy’s case and denied cert in a case in which the question was clearly presented.
This raises the question of where in the United States the discovery rule is applied. The Court noted that eleven circuits have adopted the discovery rule. Our research suggests, however, that, only eight federal circuit courts of appeals have expressly adopted the rule. In addition, opinions from the First and Sixth Circuits seem to have adopted the rule but are not entirely clear; and no cases from the Fourth and Eight Circuits have addressed the question. No federal circuit panel has expressly rejected the discovery rule.
The takeaway from this case is that copyright owners who for good reason are unaware of ongoing infringement may sue for damages and recover for a virtually unlimited period of infringement. This may have particular significance in the software industry, where infringement can be very difficult to detect, and where it can continue for decades.
This should be of interest not only to prospective plaintiffs, but to companies who hire or engage software developers and assume that they are providing non-infringing work product. Such companies may want to revisit their policies and procedures to make sure that their software releases do not contain long-lived infringement time bombs.
